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Lost Mortgage – what NOT to do

We’ve previously discussed MERS here. Here’s another case that I found discussed on Harry Styron’s blog involving MERS in Arkansas.

The case, Wetzel v. MERS, has the following background:

1. A woman named Pirlee Fox filed bankruptcy, and listed two pieces of property, one worth $75,000.
2. MERS, as the designated beneficiary for NovaStar Mortgage, filed a motion to release the automatic bankruptcy stay.
3. The bankruptcy trustee, Wetzel, objected to MERS’ motion, saying MERS didn’t have a valid mortgage.
4. MERS agrees it doesn’t have the original mortgage, but says it filed an “Affidavit of Lost Mortgage” and this should suffice.
5. Wetzel says that’s not a properly perfected mortgage, and as trustee his lien has priority.
6. The bankruptcy court sends it to the Arkansas Supreme Court for clarification.

MERS argues the trustee had proper notice as the recording statute (A.C.A. 14-15-402) specifically mentions affidavits with regard to real estate documents that must be filed, and that this particular one is an “instrument of writing affecting title”. Wetzel says sure the code says that, but only with regard to mechanics liens and similar things, and this affidavit doesn’t actually convey title as referenced in A.C.A. 14-15-404. The Supreme Court agrees with Wetzel, saying this affidavit just tells you there was at one time a mortgage and it was lost, it doesn’t actually affect the title.

The Court also notes the affidavit wasn’t property acknowledged by a notary, meaning a notary didn’t confirm anything more than that the person signing the affidavit was who they said they were – an employee of a bank asserting an interest. The affiant was not the person who actually granted the mortgage to the bank. Based on these two positions, it concludes

In sum, the affidavit of lost mortgage is not an instrument affecting title to real property pursuant to section 14-15-404(a)(1), and although accepted for recording by the Perry County Circuit Clerk, it was not entitled to recordation pursuant to section 14-15-402.
Accordingly, we hold that the recording of the affidavit of lost mortgage does not constitute constructive notice sufficient to defeat the claim of a bona fide purchaser.

On the first justification one wonders if the Court is making its own strike back against the chopping up and selling of mortgages to the rest of the world by bringing people back to Arkansas where the loans are made and the property lies if they want to correct their errors. No affidavit from someone in whoknowswhere is going to suffice. That being said, I believe the Court made the proper ruling here regardless.

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